dschool 2006

[sharada]

hi guys

qn 13-suppose all input prices as well as output price double.the level of output produced by a firm which uses a decreasing returns to scale technology will
a)be double of its original level
b)increase,but not necessarily double
c)remain constant
d)change,but we cannot say in which direction

please explain as to why the answer is (c)-remains constant


In qn 29,we will get the following cost function right?
till q<=4,use technology 2
for q>4,use technology 1.
how to proceed after this?

[duck]

hello. :)

If we look at the problem of the producer, he is interested in maximizing profit subject to technological constraints:
max p y - w x  subject to y = f(x)
which is equivalent to
max p f(x) - w x
Whether you solve the problem given above or the one with double the prices
i.e. max 2p f(x) - 2w x
the FOCs will not change and hence the optimal employment will not change, thus no change in optimal output.

[duck]

Hello, :)

q29> option "b"

Cost= q^2/2  , q les than and equal to 2
       = 2q-2 , q>2

=> he will always produce output greater than 2.
Use MR=MC condition
=> 2= 10-2q  (since, cost for output greater than 2 is 2q)
=>q=4

since, q1+q2= 4 and q2 = 2
=> q1= 2

[karmini]

hi nidhi..
i wanted to know as to how u concluded that he would produce more than 2?..

[duck]

Hello kamini, :)

You can check this by calculating the profit.
It is benefecial for him to produce greater than 2.